Ummm... what precisely do you mean use Applecare?
Applecare is a warranty -- if your drive fails, they will replace it, but most likely with one of the same size and speed. If you have dropped or abused your machine at all the will void the warranty. They will not give you a reduced price on an upgraded drive.
If you installl a drive on your own, you will void the warranty.
My advice is to get a desktop external firewire drive - cheaper and faster than a laptop drive - install an OS and use that to back up your Powerbook, and move any files to it that you are not using daily to clear room on your internal.